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Local Municipality Productive Efficiency and Its Determinants in South Africa

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  • Nara F. Monkam

    ()
    (Department of Economics, University of Pretoria)

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    Abstract

    The paper assesses the technical efficiency of 231 local municipalities in South Africa for 2007 and investigates the potential determinants of efficiency gaps among local municipalities in the country using the nonparametric Data Envelopment Analysis (DEA) and the parametric Stochastic Frontier Analysis (SFA) techniques. In relation to the DEA technique, efficiency scores are subsequently explained in a second stage regression model with potential explanatory factors using a Tobit regression model. The results show that on average, B1 and B3 municipalities could have theoretically achieved the same level of basic services with about 16% and 80% fewer resources respectively; the difference between the most efficient and the least efficient municipalities being quite substantial. The results also show that B4 municipalities could have theoretically achieved the same level of basic services with about 62% fewer operating expenditures. Furthermore, fiscal autonomy and the number and skill levels of the top management of a municipality’s administration were found to influence the productive efficiency of municipalities in South Africa. The paper findings raise concerns over the future of local municipalities in South Africa, especially B3 and B4 municipalities, about their capability to efficiently deliver on expected outcomes on a sustainable basis.

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    Bibliographic Info

    Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201120.

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    Length: 44 pages
    Date of creation: Oct 2011
    Date of revision:
    Handle: RePEc:pre:wpaper:201120

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    Related research

    Keywords: Municipalities; spending efficiency; sub-national government finance; fiscal decentralization; DEA analysis; Tobit; SFA;

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    1. Harvey S. Rosen, 1997. "The Way We Were (And Are): Changes in Public Finance and Its Textbooks," NBER Working Papers 5972, National Bureau of Economic Research, Inc.
    2. repec:gig:joupla:v:1:y:2009:i:3:p:3-31 is not listed on IDEAS
    3. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
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